Lenders, Counselors Help Homeowners Avoid Foreclosure: Part 2

by Monica Steinisch

To ensure your conversation with the lender representative is as productive as possible, prepare for the call by answering these questions:

What is the situation? How have your finances changed? Do you have documentation to support your explanation for falling behind on the mortgage--a medical note or proof of unemployment benefits, for example?

What is the prognosis? Is the change in your situation temporary, long term, or permanent? What efforts have you made to get back on track? What changes do you expect in the future?

What outcome are you looking for? Do you want to keep the home? What kind of payment plan would be realistic? Are there any particular solutions you have in mind?

How committed are you to resolving the problem? Will you communicate with the lender openly and consistently? Will you complete all forms and tasks by the deadline given? Will you keep all promises you make and see the process through to the end?

Harper also advises going into the call knowing how much equity you have in the home and what your monthly income and expenses are. The lender will need your financial information to devise a realistic solution.

During this process, keep a log of all communications. Follow up any requests you make by phone with a letter, and make sure all agreements are put in writing. And stay in the property, since you may not qualify for certain types of assistance if you move out.

Lenders' "workout" programs give owners options

Legitimate, reputable lenders--as opposed to predatory lenders, who are intentionally deceptive or discriminatory--want to avoid foreclosures, which are both costly and time-consuming. Many, if not most, have special programs that provide options to financially strapped customers.

Freddie Mac makes a variety of workout options available to its borrowers, including:

Reinstatement, which requires you to pay the lender the entire past-due amount plus all late fees and penalties by a specified date.

Repayment plan, which allows you to add an additional amount of money to your regular monthly payment until you make up the past-due amount you owe.

Forbearance, which is a formal agreement that temporarily reduces or delays payments.

Loan modification, which involves changing one or more of the mortgage terms to make payments more manageable.

What are the odds of your successfully avoiding foreclosure with one of these workouts? That, of course, will depend on your situation. However, a 2004 Freddie Mac study concluded that repayment plans could lower the probability of home loss by 80% among all borrowers.

Not every lender offers all these options. Some, such as the Federal Housing Administration (FHA) and Veterans Administration (VA), offer different or additional ones. You and the representative you speak with will determine which, if any, of the lender's programs will get you back on track.